Some Upcoming Sales and Use Tax Rule Changes from the Texas Comptroller's Office - Part 2

Today’s post follows yesterday’s discussion of the plans by the Texas Comptroller of Public Accounts to adopt some new sales and use tax administrative rules. This post covers the agency’s plans to amend several other sales and use tax rules to implement new and existing legislation and to respond to recent court litigation. Like the new rules, the expected amendments were outlined by the Comptroller’s Tax Policy Division at the annual briefing session with interested practitioners from the State & Local Tax Committee of the State Bar of Texas Taxation Section, the Texas Society of Certified Public Accountants and the Tax Executives Institute. So, here’s what businesses operating in Texas, and their tax advisers, should watch for in the coming months:

Rule 3.296 (Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer) and Rule 3.367 (Timber Items). These sales and use tax rules will be amended to cover the new tax exemption registration number required for agriculture and timber operations as enacted by House Bill 268 in 2011. Until the amended rules are adopted, the Comptroller has provided a detailed explanation of the new legislation on the agency’s web site.

Rule 3.306 (Sales of Mobile Offices, Portable Buildings, Prefabricated Buildings, and Ready-Built Homes). This sales and use tax rule will be amended to cover “oilfield portable units” (that is, housing at well sites) that were the subject of House Bill 3182, effective September 1, 2011.

Rule 3.316 (Occasional Sales; Joint Ownership Transfers; Sales by Senior Citizens’ Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters). As the Tax Policy representative explained, this sales and use tax rule will be amended to address occasional sales by sellers who sell items worth up to $3,000 per year on EBay, at flea markets, and in garage sales without a permit. This would seem to be in response to House Bill 373 enacted in 2007 and discussed in a previous post captioned “Texas Sales & Use Tax: a possible new type of tax free "occasional sale" in Texas.”

Rule 3.300 (Manufacturing; Custom Manufacturing; Fabricating; Processing). According to the Tax Policy representative, this sales and use tax rule will be amended to address mining activities. It will presumably do so in the same way as the planned new Rule 3.370, discussed in yesterday’s post, by stating that downhole and above ground equipment items used in oil and gas wells are not eligible for the manufacturing exemption.

Besides those fairly definite rule amendments, the Comptroller’s staff indicated that changes were also being considered for several other sales and use tax rules. Those are Rule 3.286 (Seller’s and Purchaser’s Responsibilities, including Nexus, Permits, Returns and Reporting Periods, Collection and Exemption Rules, and Criminal Penalties); Rule 3.285 (Resale Certificate; Sales for Resale); Rule 3.301 (Promotional Plans, Coupons, Retailer Reimbursement); and Rule 3.325 (Refunds and Payments Under Protest).

Thanks for your coverage. Long time reader, first time commenting. I'm a Texas tax attorney as well. Do you know if any of these rules have been proposed yet? And did the Comptroller announce any plans to add or amend any Texas franchise tax rules?

I look forward to reading your take on the pending Nestle decision. It should be interesting, no matter the outcome.

Good questions. The Tax Policy representative didn't indicate that any of the expected new or amended sales tax rules had been formally proposed as of the briefing in late September. Regarding franchise tax, another Comptroller staff member mentioned that the agency is planning to amend Rule 3.588 (Margin: Cost of Goods Sold), apparently to address supervisory labor for construction companies. Although Rule 3.584 (Margin: Reports and Payments) hasn't been amended, the applicable FAQ has been updated, apparently to cover policy changes applicable to combined reporting (take a look at the FAQ captioned "Notice to Reporting Entity of a Combined Report Group"). The staff member also mentioned that Rule 3.587 (Margin: Total Revenue) has just been amended to clarify the requirements that "flow through"taxes must meet before they can be excluded from an entity's total revenue.